Germany’s Federal Environment Agency (UBA) found in their investigation that up to 45 Chinese climate projects for reducing carbon emissions are suspected of fraudulently obtaining EU emission certificates through false reporting and exaggerated data. Germany has halted these projects, but the estimated loss amounts to a staggering 500 million euros.
UBA Director Dirk Messner stated that they have reviewed 56 Chinese projects that had obtained EU emission certificates, and so far, certificates for 45 of these projects have been revoked.
These fraudulent Chinese projects aimed to offset approximately 6 million tons of carbon dioxide emissions, with a market value of 1.5 billion euros (1.7 billion dollars). Messner mentioned that only about 4 million tons of credits can be recovered, indicating that Germany faces direct economic losses of around 500 million euros.
To reduce carbon emissions, the EU established the Upstream Emission Reduction (UER) system, allowing companies to earn carbon credits by participating in global climate projects to offset their own carbon emissions. Each UER project requires independent verification and certification by a third-party organization following international standards.
A spokesperson from the Environment Agency said, “When we inquired about suspicious details in the audit reports, further investigation revealed a shadow system where seemingly rational excuses were fabricated one after another through fake photos and other data.”
The Environment Agency highlighted that globally, there are 75 UER projects, with 66 located in China.
Earlier this year, a report by the Nikkei Asian Review showed that coordinates of some Chinese UER projects listed on Germany’s Emissions Trading Authority website on Google Maps revealed desert locations, and at least 8 projects were audited on-site by the same employee of a German-based environmental auditing company. Some reports on the website lacked any images proving the existence of facilities.
German Environment Minister Steffi Lemke mentioned in a parliamentary committee that even large international companies with extensive compliance departments initially failed to identify these discrepancies, illustrating the complexity of deliberate deception.
According to Deutsche Welle, part of the reason the fraud succeeded was due to a lack of independence in the certification process.
Certification assessments of such projects are conducted by third-party private institutions, with suspected fraudulent projects often involving the same individuals in project creation, verification, and certification simultaneously. These individuals, well-versed in the UER system, exploited its loopholes using their expertise to grant certification to false projects, some of which do not even exist.
Deutsche Welle’s investigation even found that a market for buying and selling UER projects has emerged in China.
Another reason the fraud succeeded was that these false projects submitted applications during the COVID-19 pandemic when certification agency personnel could not conduct field inspections and audits.
The Environment Agency mentioned that Berlin prosecutors are investigating 17 individuals, suspecting them of conspiring in commercial fraud. The accused include the managing director and staff of the UER project testing center.
In order to prevent similar emission reduction projects from being exploited in the future, the Environment Agency took a series of actions earlier this year, including amending relevant laws and terminating the current UER project application process two years ahead of schedule.
Under the new regulations, Germany stopped accepting new UER project applications starting from July 1 this year and strengthened supervision measures for existing projects. The new rules apply to all UER-related applications, not limited to those from China.
(This article references reports by Deutsche Welle and Nikkei Asian Review)